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Walking the price tightrope

Mobile handset players must straddle both ends - be a mass warrior, yet retain the aspirational high ground

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Every time a company decides to raise prices of its products it says the Indian consumer appreciates value and is willing to pay for it. That today, the buyer’s decision takes into account the brand, credibility, the ease of use, and other features, promotions or specials the marketer has to offer to keep the buyer interested over and above the price. That price was the attraction du jour until buying behaviours evolved.

So can you be a player in one of the fastest growing and highly competitive markets in India and stay out of the escalating price war? Or is it imperative for a player to straddle both ends — be a mass warrior, yet retain the aspirational high ground?

Look at the direction in which the pecking order in the 183-million-unit mobile device market in India is moving for cues. Mind you, the is driven by the lowest call rates in the world and remains essentially a feature phone market with smart phones accounting for just about 10 per cent of the overalls sales (in the fourth quarter of 2011, compared to 6 per cent of the overall mobile phone industry in the fourth quarter of 2010). From 8 million last year, the number of units is expected to touch 18-20 million before we close the year.

WORK IN PROGRESS
> RIM is slashing prices of its entry level BlackBerry models
> It is bundling cheap data packages with its smartphones
> It is working to make apps easily accessible to consumers; it is working to get apps ready for its enterprise customers as well
> RIM plans to service the SMEs through its hosted partners 
> The company is upping the ante on the app ecosystem around BlackBerry 10 OS to push sales of enterprise mobility

The bulk of the market comprises a plethora of low-cost devices that account for 75 per cent of the overall sales. While the top five remain embroiled in a bitter battle to get the upper hand in the aspirational smart phone segment, none has dared to ignore the basic feature phone market. Take Nokia, the world’s largest seller of mobile phones by volumes and number 1 in India with 31 per cent share in 2011 (according to ), which has been losing share in India to domestic phone makers such as Micromax, Lava and Maxx Mobile that are riding on low-cost, dual-SIM mobile handsets sourced mainly from China.

The company is looking to make a sweeping comeback with a range of dual-SIM mobile phones on a one hand and another range of phones branded that start at Rs 4,000 and are positioned as a cross between a feature and smart phone. A late entrant in the multi-SIM device category, Nokia has fast tracked the process of consolidation by rolling out five models by September 2011, to make its presence felt in every price segment in India.

In fact, late entrant ’s growth in India has been startling and a big reason for worry for the world’s largest hand phone manufacturer. According to the figures from a Voice & Data study, Samsung posted a growth of 21.7 per cent to register revenues of Rs 5,720 crore in 2010-11 from India (up from Rs 4,700 crore in the previous fiscal, while Nokia showed flat growth, with revenues of Rs 12,929 crore in 2010-11 from the country, compared to Rs 12,900 in the previous fiscal.

Samsung was quick to learn that customers who want the cheap and cheerful can be more demanding than the premium segment customers. In an earlier interview, Ranjit Yadav, country head, mobile & IT business at Samsung India, told The Strategist, “We are not here for a niche play or for a small set of the consumers. We want to offer certain features and applications for everybody who has a Samsung phone and then offer them a choice to move up to a smartphone.” So range is key for the Korean firm — it has phones starting at Rs 7,000, going all the way up to Rs 35,000 across its three operating platforms.

Both Samsung and Nokia strongly believe that while they are in a market creation mode, an emphasis on price will be a big mistake. “The customer must get a superior experience and should be offered an eco-system that will help them make full use of the device in their hand,” says Samsung’s Yadav. “With time the price will come down in any case. If customers are dissatisfied with the outcome, irrespective of the price, all efforts will fail. This is a choice manufacturers have to make — offer value pricing or cheap products.” Of course, the cheap and cheerful works if you have an extremely low cost base and there is huge demand.

For Blackberry the struggle is of a different order altogether. Although 2012 seems to have begun on a note of struggle for RIM — overall earnings are down, sales are down — the Canadian company is working hard to convince naysayers that it isn’t pulling out of the Indian market. A case in point is the entry level handset, the smartphone priced at Rs 10,990 (with free apps worth Rs 2,500), which the company unveiled specifically for the Indian mass market.

RIM India executives are convinced that the Curve 9220 will find acceptance among the youth segment. To address the demands of this set of customer, RIM has packed in a dedicated BlackBerry Messenger (BBM) button for instant access, a 2 MP camera with 5X digital zoom, FM radio, and expandable memory up to 32GB. Sunil Dutt, managing director of RIM India, says putting BlackBerry within reach of the younger customer base will help it garner the much needed volumes, if not the top place in the smartphone market. “We are not just putting affordable smart devices but along with partner operators like Vodafone we have now prepaid BBM plans starting as low as Rs 5 per day. And this is as affordable as it gets for the youth,” he says.

Playing the ‘affordable handset’ card has worked for RIM in India until now. , lead analyst (telecoms practice), CyberMedia Research, reasons, “In its consistent effort to launch new devices at attractive price points, the share of BlackBerry in the India smartphones market has grown from 3 per cent in 2008 to 15 per cent in 2011. While aggressive competitors like Samsung, which make smartphones based on multiple OS platforms such as Android and Windows Mobile, have recorded even higher year-on-year growth rates, BlackBerry devices have found a large, new customer base in the India youth segment.”

No one at RIM India denies that they have a tricky situation at hand. , RIM’s director marketing (India) is aware of the uphill task on hand — convincing the new buyers to pick up a BlackBerry. So the company is working hard to ensure cheaper data packages are bundled along with its smartphones and the message goes loud and clear to the consumer. In comes a new BlackBerry Boys’ advertisement that focuses on the new breed of users, mostly retail customers. To woo the value-conscious Indian customer, RIM has slashed the prices of three of its entry level BlackBerry models, in the Curve series. The highest price cut of around Rs 8,000 was for its Torch phone, which is both touchscreen and QWERTY. “The price correction and sachet-priced data plans have enabled us to reach the tier 2 cities and areas that aspired for the device and its messenger services. We have seen a great demand from towns like Baroda, Rajkot, Bhubaneshwar, Hubli, Mysore etc that were never on the smartphone radar,” points Baruah.

Anshul Gupta, principal research analyst, Gartner points how RIM is making all the right moves in India. “In the emerging markets, smartphone is experiencing over 43 per cent CAGR and affordability is the number 1 criteria among buyers.” He quickly adds that affordability means lower average selling prices for devices and latest technology at the same time. Which explains the rush to launch 3G handsets. “In anticipation of increased 3G data usage among subscribers all the major handset vendors introduced their 3G phone portfolios to the India market during CY 2011. In many respects, 2012 will be a ‘test year’ for the growth and adoption of 3G handsets and data services in the country and it will be interesting to see how new alliances and offerings emerge from handset vendors, service providers and content developers to target mobile subscribers with innovative device plus data service bundles,” says Naveen Mishra, lead telecoms analyst, CyberMedia Research.

For Dutt, RIM’s success in India will rest on making sure that consumers don’t abandon the cheaper BlackBerrys as they move up the smartphone ladder while making sure that for the next set of enterprise customers including SMBs choose their sachet-priced business solutions. And while RIM India is sold on the idea of selling affordable devices and cheaper data services, other smartphone players like Apple and Samsung have moved swiftly to consolidate their position among the top tier customers, truly making their brands aspirational. “The big challenge to succeed in this market is to have proper mix of features and technology relevant to consumers offered at the lowest possible price,” Anshul Gupta, principal research analyst, Gartner sums up.

So there you have it. The average Indian consumer wants all the whistles and bells. And they seem to know how to quantify value down to the last rupee.

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